National Association of Purchasing Managers

National Association of Purchasing Managers (NAPM)

Importance: ***

Definition: The National Association of Purchasing Managers (NAPM) index is a leading indictor of economic activity. It is based on a survey of over 250 companies within twenty-one industries covering all 50 states. Its importance derives form the fact that it is the first indicator each month of manufacturing performance during the past 30-day period and is also a leading indicator of future economic activity and pricing decisions.

Related Indicators:

Source: National Association of Purchasing Managers (NAPM)

Frequency: Monthly

Availability: First working day of the month following the reported period.

Direction: Pro-cyclical

Timing: Leading indicator

Volatility: Moderate

Likely Impact of Financial Markets:

Interest Rates:

Stronger-than-expected monthly index signal high economic activity in the future that may be inflationary under conditions of full capacity; Since that is inflationary, interest rates will tend to rise and the Fed is more likely to tighten monetary policy.

The bond market views a strong report as bearish and a weak report as bullish.

Stock Prices: Ambiguous. On one side it signals high economic activity and profits in the future that is bullish for the stock market. On the other side, it may lead to higher inflation and interest rate that is bearishj for the market. The second effect dominates when the economy is close to full capacity.

Exchange Rates: Modest effect. As long as it signals higher future interest rates, it leads to a currency appreciation.

Ability to Affect Markets: Strong as it is the first indicator providing information about economic activty in the previos month and is also a leading indicator of the business cycle.

Analysis of the Indicator:
The survey covers the six areas: Production; Orders; Commodity Prices; Inventories; Vendor Performance; Employment. Participants to the survey are asked to characterize each of these categories as "up", "down", or "unchanged". The calculated index is next seasonally adjusted. A reading of 50 indicates that conditions are unchanged. A reading over 50 suggests an expanding economy and under 50, a declining economy. The index for the Chicago region is published a day before national index. While the Chicago index is volatile and not a perfect predictor of the national index, it is also an important early leading indicator of economic activity.

Web Links

For more information on this indicator take a look at The NAPM homepage.

A graph of the latest NAPM Data.

See the Dismal Scientist Homepage for charts, tables and analysis of the latest NAPM report.